New Apple hire fights back in countersuit against IBM

The tug of war over the future of Mark Papermaster, an executive hired away from his post at IBM to head up Apple's handheld efforts, got a bit nastier on Thursday when the microprocessor expert countered a lawsuit from his former employer with one of his own.

Earlier this month, Apple conclude a year-long search to replace outgoing iPod chief Tony Fadell by appointing Papermaster its new chief of devices hardware engineering overseeing both the iPod and iPhone. IBM was none too thrilled over the poaching and quickly sued its former employee, alleging that he was in violation of his noncompete agreement with Big Blue by joining one of its 'competitors.'

U.S. District Judge Kenneth Karas last Friday issued a temporary injunction ordering the executive to immediately cease work at Apple until the court could come to a decision on whether his employment there breaches clauses in his contract with IBM that prompted a lawsuit. Apple responded to the move by removing Papermaster's bio from its website, presumably as part of standard procedure.

But in a 16-page countersuit [PDF] filed by Papermaster on Thursday, the exec argues that Apple and IBM are not significant or major competitors. "IBM primarily provides business enterprise services, while Apple’s primary business is the design, manufacturing and marketing of consumer electronic products," he said.

Papermaster also claims that certain clauses in his contract with IBM, such as the "significant competitor or major competitor” prong, are unreasonably broad in that they aim to restrict him from going to work for one of the company's competitors even if what he'll be working on is completely unrelated to the work he was doing at IBM.

"The Noncompetition Agreement is also unreasonably broad in that it purports to impose an unreasonably lengthy time limitation," his attorneys added. "In the world of technology, any trade secrets that Mr. Papermaster possesses would lose their value prior to the expiration of a year."

Papermaster's counsel further argued that provisions in his non-compete agreement are unenforceable in that they're "governed by, and construed in accordance with, the laws of the State of New York."

"Mr. Papermaster has no substantial relationship to New York, in that he has resided and worked in Texas for the past 17 years, and he is going to work for Apple, which is a California corporation," the suit says. "Mr. Papermaster therefore has the most significant contacts with Texas and California. Both states hold that such noncompetition agreements are unenforceable as a matter of public policy."

On Tuesday, Judge Karas ordered IBM to put up $3 million bond to cover any costs or damages Papermaster might suffer should it turn out that the injunction should not have been issued.

3) The law of New York doesn't apply because Papermaster doesn't want it.

With arguments like these, Papermaster is damaging his own credibility in the eyes of future employers. He should seek legal advice from a good lawyer before he does further damage to his carreer.

Well then, exactly what is the area of contention by IBM.
They don't make desktop computers any more (sold that to Lenovo).
Don't make music players or any consumer devices that I know of.
Papermaster didn't come from and isn't destined for any back-office work at Apple.

3) The law of New York doesn't apply because Papermaster doesn't want it.

With arguments like these, Papermaster is damaging his own credibility in the eyes of future employers. He should seek legal advice from a good lawyer before he does further damage to his carreer.

I'm sorry but you're wrong as the day is long.

1. For the non-compete to have any significance Papermaster would have to go to a direct compeitor. IBM and Apple are pretty far from each other. Apple doesn't even use PPC chips anymore from IBM.

2. Unreasonable is subject to debate which is what is happening.

3. Much like tax issues Papermaster probably paid NY taxes and Texas taxes and then was reimbursed for the overages at filing. If you work for a company yet reside in another state there are things that change with regard to employment and the observance of laws. IBM has offices in many states, being a NY company doesn't absolve them from recognizing and adhering to the locality in which their employees work.

He's a mod so he has a few extra vBulletin privileges. That doesn't mean he should stop posting or should start acting like Digital Jesus.- SolipsismX

3) The law of New York doesn't apply because Papermaster doesn't want it.

With arguments like these, Papermaster is damaging his own credibility in the eyes of future employers. He should seek legal advice from a good lawyer before he does further damage to his carreer.

Maybe you should re-read the article. He and his lawyers make several valid points to the validity of the non-compete agreement.

So if IBM and Apple both made printers and this guy worked in personnel at IBM, he wouldn't be able to work at Apple at all, because they compete with each in the printer market!? That doesn't make any sense, the position doesn't have anything to do with the "competing" products. A non-compete agreement should only apply when the employee is going to work in a similar position at another company where his knowledge would be beneficial to his new company. What does running a CPU division have to do with running a music player division?

It is understandable to not want an employee to leave your company with expertise learned on the job, only to take that knowledge to a competitor and use it to advance competition. However, companies do ask a tad bit too much from employees when they're forced to sign those agreements. Every technology company could be considered a "competitor" by IBM. This is why they are unenforceable in some states.

Disclaimer: The things I say are merely my own personal opinion and may or may not be based on facts. At certain points in any discussion, sarcasm may ensue.

3) The law of New York doesn't apply because Papermaster doesn't want it.

With arguments like these, Papermaster is damaging his own credibility in the eyes of future employers. He should seek legal advice from a good lawyer before he does further damage to his carreer.

I think you are in your own RDF.

1--His argument is not that they are not hardware designers, but that they are not in competetion. That is, customers are not deciding between buying IBM servers or iPhones.* IBM seems to be saying in some of their statements that he should be restrained from working with any company that uses microprocessors.

2--This one is a bit weak, I'll agree. But still, the argument is not that one year is unreasonably long, just that his "trade secrets" would have lost their value before a year was up because of the fast pace of inovation.

3--Does it make sense to you that living and working in Texas (for 17 years) and looking to move to and work in California he should be governed by the laws of New York? I don't know contract law well enough to make a judgement on this, but it seems that Papermaster has more basis for his argument than simply "not wanting" it to apply.

* I know, I know, Apple makes Xserves too. But that is not the division Papermaster will be involved with and furthermore, does anyone consider Apple a real or potential competitor with IBM in that arena?

[Edit]
I thought I double--tripple-quadruple posted at first. It looks like I wasn't the only one to have a beef with ouragan's argument. I would not have posted had I known--there is no need for a pile on here...

What does running a CPU division have to do with running a music player division?

Since Apple purchased a CPU manufacturer presumably for use in its mobile devices, it could have a lot to do with it. That would make his former post at IBM potentially in direct competition to his new post at Apple because he has knowledge of IBM intellectual property that might be useful in his new post at Apple which is now also a CPU manufacturer producing processors for Apple's mobile devices. That is IBM's contention.

With respect to contract law and the references to New York, almost all corporate contracts these days say they are governed by the laws of the State of New York because most companies are headquartered there. As an officer of the company, it doesn't matter where the employee lives. If he signed a contract with those terms, then he must adhere to the terms of his contract.

It's about time a judge used his brain on some of this foolish crap. The U.S. legal system has gone in the crapper. It is refreshing to see a glimmer of brains being used here.

What most people do not realize is that it is not up to the judge, but rather the jury, to form their own interpretations of the law. It is unfortunate that today, jury members do not know this and they are now being told by the judges that they will interpret the law as it is given them by the judge. Judges today are also saying things like, "if you bring up the Constitution in my courtroom one more time, I'll hold you in contempt!" I know this personally because it happened to a friend of mine.

So if IBM and Apple both made printers and this guy worked in personnel at IBM, he wouldn't be able to work at Apple at all, because they compete with each in the printer market!? That doesn't make any sense, the position doesn't have anything to do with the "competing" products. A non-compete agreement should only apply when the employee is going to work in a similar position at another company where his knowledge would be beneficial to his new company. What does running a CPU division have to do with running a music player division?

If he just worked in the CPU division at IBM and later just at the music player division at Apple, that would be right. However, Papermaster is more senior than that.

Tech companies tend to have regular meeting of the top executives to discuss future plans, marketing, competitors and the like. If XServes come up (invest more? invest less? what are our competitors doing?) Mr. Papermaster will have some very relevant information about what IBM is doing. He's in the meeting. Will he keep his mouth shut?

At that level, it's not enough that his specific job does not compete with IBM.

1--His argument is not that they are not hardware designers, but that they are not in competetion. That is, customers are not deciding between buying IBM servers or iPhones.* IBM seems to be saying in some of their statements that he should be restrained from working with any company that uses microprocessors.

2--This one is a bit weak, I'll agree. But still, the argument is not that one year is unreasonably long, just that his "trade secrets" would have lost their value before a year was up because of the fast pace of inovation.

3--Does it make sense to you that living and working in Texas (for 17 years) and looking to move to and work in California he should be governed by the laws of New York? I don't know contract law well enough to make a judgement on this, but it seems that Papermaster has more basis for his argument than simply "not wanting" it to apply.

* I know, I know, Apple makes Xserves too. But that is not the division Papermaster will be involved with and furthermore, does anyone consider Apple a real or potential competitor with IBM in that arena?

[Edit]
I thought I double--tripple-quadruple posted at first. It looks like I wasn't the only one to have a beef with ouragan's argument. I would not have posted had I known--there is no need for a pile on here...

1. your right. I think what it comes down to is if IBM can prove that the knowledge Papermaster has can reduce their revenue. Im not exactly sure what he did for IBM but i think it had to do with enterprise business. One of apples goals is to break into the enterprise business with the iphones. Im not sure if this is an acurate hypothetical but i suppose it going go down like this: businesses need iphone compatible servers to get the utility out of the iphone, those servers are not made by IBM. Maybe Papermaster working for Apple would inadvertently take away business from IBM. Im not sure if this is even something that could be remedied. Hey its just for sack of discussion right?

2. Apple has a pretty good argument about the 1 year being unreasonable as far as technology goes. I would guess his contract probably said 2 or 3 years non-compete. But IBM will have to prove that Papermaster caused damages.

3. I am not an attorney (only a 2nd year law student) but i think paper master waived jurisdiction when he signed his contract that said it is governed under the laws of New York. I think its pretty simple, waiver is waiver and he has to live with it. There was a Oregon case that was similar back in 2005 that the employee worked in California but the main office was located in Oregon and his contract said it is governed by Oregon Law. The court said Cali law does not apply and the guy was SOL. This is not binding on New York.

My guess is that this case will hinge on the issue of competition. IBM lawyers are smart they are not going to file a lawsuit somewhere they cant get jurisdiction. I doubt the judge can or will alter the time period on the contract either. I think its going to be enforceable or not.

Another factor in all of this is Papermasters job opportunities. I think an important factor will be "hey where else can Papermaster get a job that he makes (probably $5 million a year) that is not competing with IBM?" Technology is his field of expertise and he should be allowed to stay in that field. He should be forced to take a paycut and forced to work for nintendo.

If the court decides that the non-compete cannot be enforced there is going to be interesting what states will follow. As far as i know most states enforce non-compete clauses in contracts. So Apple is fighting an uphill battle. If apple and ibm do not come to an agreement this is going to be a long trial.

With respect to contract law and the references to New York, almost all corporate contracts these days say they are governed by the laws of the State of New York because most companies are headquartered there. As an officer of the company, it doesn't matter where the employee lives. If he signed a contract with those terms, then he must adhere to the terms of his contract.

If you live in California you are governed by California employee law. There is no way around that. It's the same for any state, your governed by the law of the state you live in not the state your employer office is in.

It's the same for state income tax, you only pay the income tax for the state you live in. Example, New York can't tax an employee in California. It's illegal for another state to tax a non-resident, no matter how much they want to, just because the company is in that other state.

One thing I have not seen anyone mention is that the CA Supreme Court about awhile ago declared these clauses not enforceable in CA. So if Apple is in CA then IBM's legal maneuverings may not be valid or enforceable here in CA. Not sure if this applies though since Papermaster is in Texas where Apple does have offices. Apple was offering relocation expenses per the documents that have been filed in the case. He may be moving to CA for this position because he would report direct to Steven Jobs.

It's the same for state income tax, you only pay the income tax for the state you live in. Example, New York can't tax an employee in California. It's illegal for another state to tax a non-resident, no matter how much they want to, just because the company is in that other state.

I'm not sure that's true. I've had to pay/file forms for other state taxes on projects I've freelanced depending where they were (New York coming immediately to mind). I live in California, but the studio I worked for was in NY. And I have a darn fine tax attorney and CPA to help me, so... I think you can pay multiple state taxes, or at least have to file CA income tax and other states as well....

Where does Apple and IBM compete? IBM lost PC business long long long ago and the Thinkpad and Deskstar line were sold to Asia. Apple has no traction with Xserve, they just fire the VP in charge of Xserve(recent AI article somewhere). Unless IBM can prove this is a cover for Xserve, how is Papermaster gonna feed his family in this economic turn down.

I'm shocked that any court would ever allow a non-compete clause anyway. You can't prevent a person from making a living in the profession with which they have experience, regardless of what they signed.

With arguments like these, Papermaster is damaging his own credibility in the eyes of future employers. He should seek legal advice from a good lawyer before he does further damage to his carreer.

I strongly disagree--any one of those arguments sounds compelling to me and all of them together sound like doom for IBM. I suggest we start a pool as to which of them (not if one of them) is the one the judge uses to toss the injunction. And strong, winning legal arguments make the employee look desirable, not damaged.

3. I am not an attorney (only a 2nd year law student) but i think paper master waived jurisdiction when he signed his contract that said it is governed under the laws of New York. I think its pretty simple, waiver is waiver and he has to live with it.

When you are more than a 2nd year law student you will find out that rarely is it 'pretty simple'

It may be deemed or have been that such a clause in a contract is unenforceable. so then it doesn't matter if he signed it or not. Especially in this case where the states in question don't recognize NDA

If you live in California you are governed by California employee law. There is no way around that. It's the same for any state, your governed by the law of the state you live in not the state your employer office is in.

It's the same for state income tax, you only pay the income tax for the state you live in. Example, New York can't tax an employee in California. It's illegal for another state to tax a non-resident, no matter how much they want to, just because the company is in that other state.

A simple Google search would have saved you the embarrassment of posting uninformed drivel.

What most people do not realize is that it is not up to the judge, but rather the jury, to form their own interpretations of the law. It is unfortunate that today, jury members do not know this and they are now being told by the judges that they will interpret the law as it is given them by the judge. Judges today are also saying things like, "if you bring up the Constitution in my courtroom one more time, I'll hold you in contempt!" I know this personally because it happened to a friend of mine.

There is a lot more going on today than we realize, folks.

Cliff, I am with you, but my point was that at least the judge made IBM set aside some "penitence money" in case it turns out that the jury decides IBM is harassing Papermaster.

I am also 110% with you on your web site. Regrettably I am on the other end of the "Old North State" Let me know if your roots needs some fertilizer, we have plenty on this end of the state!

wouldn't be too bloody. (1) sure both companies are compete with each other: http://blogs.computerworld.com/why_d...rk_papermaster
(2) 1 year actually are very reasonable. Normal non-competing clause is 3 years.
(3) If the IP law of the company is depend upon where you live, there would be a big mess come out... Hmm, wondering why all of company incorporated in delaware.

I think he got bad advice from someone to get into lawsuit. Sorry, he is a good chip designer, that is why Apple want him. If he is printer making guy, I am sure no top dollar for him (might get a reject letter from Apple, if apple care).

If he has a "Contract" with IBM look at the Uniform Commercial Code. Article 1-205 is "Course of Dealing, Usage of Trade" and Article 2-208 deals with "Course of Performance".

He only needs to show that IBM in a "similar" situation had hired a employee from another tech firm and claimed it didn't violate any non-compete agreement. Course of Performance.

If something like Paymaster is doing is common in the tech business it could meet the the "Usage of Trade" verbiage. (e.g. going to a phone design position from a computer chip design position)
I don't think IBM was having him designing mobile hardware for interfacing with servers.

I'm no Einstein but Steve Jobs is no dummy.

P.S. The comedians could have a field day with this one, wonder what Steve Balmer will say about this dispute.

second thought: with all the souls got recently throw out in the market, Apple might pick up a JAVAmaster out of 6000, instead of Papermaster. Chip design is hot. Few years ago, Microsoft picked up a MIPS master. The argument of "IBM and Apple are not in the competing category" chaps may think that Microsoft must go nuts to get a chipmaster... Loss of link in the chip or brain are both deadly. (did we think chip is the brain of computer? thanks god some of the brain do not make the chip).

I'm not sure that's true. I've had to pay/file forms for other state taxes on projects I've freelanced depending where they were (New York coming immediately to mind). I live in California, but the studio I worked for was in NY. And I have a darn fine tax attorney and CPA to help me, so... I think you can pay multiple state taxes, or at least have to file CA income tax and other states as well....

If you have a meaningful business presence in another city or state, you (as an independent contractor) have to pay local taxes. For my company, we end up paying tax in a state if one of our employees sits in a cube for more than 4 weeks, be it at a client location or a space we rent. You simply have to indicate that you had no meaningful business operations to avoid taxes (and more of a hassle, a local business license).

If you have a meaningful business presence in another city or state, you (as an independent contractor) have to pay local taxes. For my company, we end up paying tax in a state if one of our employees sits in a cube for more than 4 weeks, be it at a client location or a space we rent. You simply have to indicate that you had no meaningful business operations to avoid taxes (and more of a hassle, a local business license).

Oh, it gets complicated. I was simply pointing out to the other guy that one can actually file state income taxes in multiple states, which he claimed was not the case.